IPO OF ALIBABA

Submitted by:

Ashish Ku mar Verma(212)

Pratik Bhattacherya(209)
Raya Mukherjee(210)
Manmeet Bhatia(214)
Mohit Pathaniya(142)

Mukhiyan(227)

About the company

Alibaba
Group
Holding
Limited is
a
Chinese e-commerce company
that
provides consumer-to-consumer, business-to-consumer and business-to-business sales
services via web portals. It also provides electronic payment services, a shopping search
engine and data-centric cloud computing services. The group began in 4th April 1999 when
Jack Ma founded the website Alibaba.com, a business-to-business portal to connect Chinese
manufacturers with overseas buyers.

Key people
Jack Ma (Chairman)
Jonathan Lu (CEO)
Joseph Tsai (Vice Chairman)

Headquarter
Hangzhou, China

Products
E-commerce,
Online auction hosting,
Online money transfers,
Mobile commerce

Slogan
Global Trade Starts Here
On

September

2014

Alibaba

comes

up

with

an

IPO.

What is IPO (initial public offer)

The first sale of stock by a private company to the public. IPOs are often issued by smaller,
younger companies seeking the capital to expand, but can also be done by large privately
owned companies looking to become publicly traded.

Alibabas giant IPO

Six firms were listed as Alibabas lead underwriters, listed mostly in
Alphabetical order:
Credit Suisse
Deutsche bank
Goldman Sachs
JPMorgan chase,
Morgan Stanley and

 Citigroup.
They emerged as winners for the honour of running an I.P.O. That could ultimately end up
raising more than $20 billion.
Credit Suisse and Morgan Stanley worked on much of the prospectus
JPMorgan and Goldman were tasked with working on the offering structure
and communicating with existing shareholders
Deutsche bank and Goldman helped out with legal due diligence

Employees and directors in Alibaba group

Alibaba had 20,884 employees as of Dec. 31 and 7,306 of them were in Engineering and data
analysis.
Yet the company has just four directors:

founder Jack Ma,

vice-chair Joseph Tsai
Softbanks Masayoshi son and
a yahoo executive, Jacqueline reses, who will step down ahead of the IPO

Offering price between US$66.00 and US$68.00 per ADS.

ADSs offered by ALIBABA: 123,076,931 ADSs
ADSs offered by the selling shareholders: 197,029,169 ADSs
ADSs outstanding immediately after this offering: 320,106,100 ADS (368,122,000 ADSs
if the
underwriters exercise in full their option to purchase additional ADSs)
NYSE trading symbol: BABA

LOCKUP :

91 days after the date of this prospectus, 8,108,115 ordinary shares will be available
for sale in the public market;
181 days after the date of this prospectus, 429,052,673 ordinary shares will be
available for sale in the public market; and
366 days after the date of this Prospectus 1,579,322,008 ordinary shares will be
available for sale in public market

Dividend policy
Alibaba is unlikely to pay dividends, so in 10 years its share price would need to reach $171
to deliver a 10% annual return. To estimate its market cap in 2024, well need to make some
assumptions about how many shares will be outstanding.
Its clear from the IPO prospectus that Alibaba plans to use its shares as currency for
numerous acquisitions. On page 133, management states that it plans to expand via
acquisitions and investments in cloud computing, digital media, mobile commerce, logistics,
and brick-and-mortar stores. Since April 2014over just 6 monthsAlibaba has spent or

committed to spend $8.2 billion on a dizzying series of acquisitions and investments. They
include full acquisitions of, or investments in, mobile providers, chain stores, an Internet TV
company, a maker of electrical appliances, and a tracking system for medical products. The
list goes on to encompass a movie producer, a digital broadcaster, and a Chinese professional
soccer team.
So its reasonable to forecast that Alibaba will issue plenty of new shares to fund its
ambitious plans for expansion. Once again, well be conservative and predict that in 10 years,
the share count is just 30% higher than today, meaning Alibaba would issue 740 million new
shares at a current value of $50 billion. By 2024, its shares outstanding would stand at 3.2
billion. So to deliver that 10% return, Alibaba would need a market cap of $547 billion,
calculated by multiplying the $171 share price times the 3.2 billion shares.
Using that number, we can make a reasonable guess at what its earnings would need to be.
For the fiscal year ended March 31, Alibaba posted $3.7 billion in profits. (Its P/E, at $66,
would be a formidable 44.) Lets assume that its P/E falls in 10 years to a number that still
exceeds the markets long-term average, to around 20. In that case, Alibaba would need $27
billion in net profits to provide a 10% annual return.
Getting from $3.7 billion to $27 billion in profits would require an annual growth rate of
20%. Its possible, but its highly improbable. Other than government-owned Fannie Mae and
Freddie Mac, only two companies on the Fortune 500 achieved profits over $27 billion in
2013, Exxon Mobil and Apple. With a half-a-trillion-dollar-plus market cap, Alibaba would
rank among the worlds most valuable companies. Today, only Apple boasts a valuation over
$500 billion. In other words, dont bet on it.
And this is the best case scenario! Lets predict whats highly possible, that Alibabas shares
pop by, say, 25% on the first day of trading. In that case, Alibaba would need a market cap of
almost $700 billion and earnings of $35 billion by 2024 to generate a 10% return for
investors. The Chinese online market has a great future, and Alibaba could very well continue
on its path to success. But thats not enoughin fact, not nearly enoughto make it a good
investment.

Underwriting
HONG KONG (Reuters) - Banks handling the initial public offering of Alibaba Group
Holding Ltd are set to earn $300.4 million in underwriting commissions, the Chinese ecommerce giant said in a securities filing on Monday.
The fees are equivalent to 1.2 percent of the total deal, which reached $25 billion after
underwriters exercised an option to sell additional shares.
The company will pay $121.8 million in fees, while selling shareholders are set to pay
another $178.6 million, according to the filing.

Citigroup Inc., Credit Suisse Group AG, Deutsche Bank, Goldman Sachs Group Inc.,
JPMorgan Chase & Co and Morgan Stanley acted as joint bookrunners of the IPO.

Underwriter Fees
Alibabas underwriters earned $300 million in fees, taking home 1.2 percent of the proceeds,
according to a filing today. Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs
Group Inc., JPMorgan Chase & Co. and Morgan Stanley each earned 15.7 percent of the fees,
while Citigroup Inc.s share represented 7.9 percent, the filing shows. Alibabas 28 other
underwriters received 1 percent or less apiece.
Alibaba, led by billionaire chairman Jack Ma, slipped 3.9 percent to $90.25 at 11:04 a.m. in
New York today.
About 50 percent of Alibabas IPO was allocated to 25 institutional investors, people familiar
with the matter said last week. Such a concentrated deal encouraged more fund managers to
buy on the first day of trading, as they sought exposure to Alibabas dominance over a
booming e-commerce industry in the country of 1.36 billion people.
McKinsey & Co. predicts online commerce in the worlds second-largest economy will reach
$395 billion next year, triple its 2011 level. Alibabas retail platforms helped generate 6.1
billion package shipments in the 12 months ended June, accounting for 54 percent of the
nations total, the company said in August.

IPO of Alibaba
Alibaba Group Holding Ltd.s shares soared 38 percent in their first day of trading on Friday
as investors jumped at the chance for a piece of what is likely to rank as the largest IPO in
history, in a massive bet on China's burgeoning middle class
The stock opened at $92.70 shortly before noon ET (1600 GMT) and quickly rose to a high
of $99.70, before paring gains to close at $93.89. Some 271 million shares changed hands,
more than double the turnover on Twitter Inc.s first day last year, although still short of
volume for the General Motors Co and Facebook Inc. IPOs.
The company, which operates China's largest Internet shopping destination, Taobao, and retail
site Tmall.com, earned $3.7 billion in the 12 months ended March 31, 2014, up about $2
billion from the prior 12-month period
Alibaba has a market value of $231 billion, exceeding the combined market capitalizations of
Amazon and eBay, the two leading US e-commerce companies.

Alibaba is valued at 39 times its estimated earnings per share for its current fiscal year, which
ends in March. That is right in line with Facebook's valuation of 39 times forward earnings
but nowhere near the lofty valuation of Amazon.com's multiple of 264, according to
Thomson Reuters Starmine data.

Interesting facts of Alibaba

This
company
is
profitable
Amazon.com AMZN, +0.87%.

like

eBay EBAY, +0.20 but

grows

like

For the 15 years Ive covered IPOs, theres almost always a choice to make between fastgrowing, unprofitable companies and profitable ones with slower growth. Really big deals
like Google GOOG,-1.23% and Facebook FB, +0.35% had both. Alibaba BABA, +0.49% is
like those, but more so.
Alibabas sales rose 55% in the fiscal year that ended in March, to $8.46 billion. It grew 46%
again in the first quarter of this year. But profit is growing much faster: Last years $4.02
billion operating profit was up 132%. Before its IPO, Facebook was half the size and its
profit margins were narrower, though it grows a bit faster than Alibaba.
Alibabas three main Web marketplaces generated $296 billion in gross merchandise sales in
the four quarters (eBay did less than $80 billion).
Alibaba is bigger than even established blue-chip companies.
At its current sales pace, Alibaba will reach the size of U.S. companies like
Marriott MAR, +0.30% Texas Instruments TXN, +1.72% and Nordstrom JWN+0.75% this
year. Its bigger than Visa V, -0.08%According to Renaissance Capital, at $63 a share it
would be the 23rd most-valuable company listed in the U.S., with a $161 billion market
value.
The valuation is surprisingly conservative.
The $66 top of Alibabas price range values the company at 41 times last fiscal years
earnings. On this years likely earnings, Alibabas pre-IPO range supposes about a 25 priceto-earnings ratio. Much lesser Internet companies get much higher multiples.